Final Salary Pensions

Due to the pension changes, introduced in April 2015, there has been an increased interest in final salary pensions transfers (or defined benefit transfers). It is now possible for many people to transfer out of a final salary pensions scheme into a defined contribution scheme, to take advantage of the new pension rules which allow full access to a pension fund.

As people are now living longer, employers are having to pay more to provide these type of guaranteed pensions and the cost of running these schemes can be very expensive for them to maintain. Once you have left the scheme you won’t be entitled to any future benefits of the scheme, but will get a pension lump sum which could be quite substantial and can be invested in a way that you choose.

If an individual has got a benefit with a value over £30,000, The Financial Conduct Authority states that they must take advice from a regulated Advisor who has the relevant permissions and qualifications. That is where we come in.

When You Can Take Your Pension

Most defined benefit schemes have a normal retirement age of 65.

This is usually when your employer stops contributing to your pension and your pension starts to be paid.

Depending on your scheme, you might be able to take your pension from the age of 55, but this can reduce the amount you get.

It’s also possible to take your pension without retiring.

You might also be able to defer taking your pension.

This might mean you get a higher income when you do take it. Check your scheme for details.

Once you pension starts to be paid, it will increase each year by a set amount (your scheme rules will tell you by how much) for life.

When you die, it might continue to be paid to your spouse, civil partner or dependents.

This is usually a fixed percentage (for example 50%) of your pension income at the date of your death

Taking your pension as a lump sum

You might be able to take your whole pension as a cash lump sum.

If you do this, up to 25% of the sum will be tax free, and you’ll have to pay Income Tax on the rest.

You can do this from age 55 (or earlier if you’re seriously ill) and if:

The total value of all your pension savings is less than £30,000.

Your pension is worth less than £10,000, regardless of how much your other pension savings are. You can do this for up to three different pensions.

The Advantages & Disadvantages

Research has shown that only two thirds of final salary pension members are even aware of the higher transfer values available to them and therefore are potentially missing out on the opportunity to take advantage of the benefits.

The advantages of transferring out include:

Complete access to the transferred value of the fund

Potential for greater tax-free cash

Opportunity to pass on as inheritance

Option to choose how benefits are taken

Opportunity to buy an annuity with the proceeds

Benefits can be taken from any age after 55

Transfer values can be high due to low gilt yields

So, what are the dangers of final salary pensions transfers? A final salary pensions scheme mitigates many of the risks of retirement for you and puts those risks with the scheme, the former employer and also the Pension Protection Fund. If you decide to transfer out of a final salary scheme, then the risks become yours!

It is possible to transfer out of most final salary pensions schemes, although it is not possible to transfer out of a final salary scheme if it is being paid. It is also not possible to transfer out unfunded government schemes. However, local authority pensions can be transferred.

Pensions of the following can not transfer out:

NHS

Teachers

Police

Armed Forces

Civil Forces

The starting point for any transfer out of a final salary pensions scheme is that it should not be transferred unless there are some very sound reasons to do so…

So what should you bear in mind if you are considering transferring out of a final salary scheme:

Be sure you understand what you are giving up including your guaranteed income

Be aware of scam schemes

Ensure you understand the risks you are taking on with a new scheme

Consider all your options

And finally, take transfer advice from an appropriately qualified firm of Financial Advisers that specialise in cash flow modelling software. We believe this to be an essential part of the transfer advice.

Our Expertise & How We Do This

Here at Sheards Wealth Management, we are specialists in this area. If you would like to discuss your pension in more detail, please contact us on 01484 448 019 or email: [email protected]

Do you want to leave an inheritance? Start with a clear goal and work towards it. Consider all your current assets but also plan for inflation and think about #tax implications. Find out more in our Investment Planning and Asset Allocation guide here : sheardswealthmanagement.co.uk…pic.twitter.com/joMlbMaoDx